Date of publication: 13 May 2013
Yevgen Solovyov, Attorney at Law
Source: Economichna Pravda
A new bill was introduced into Ukrainian Parliament to simplify the liquidation of sole proprietorships that don’t have employees by amending certain legislation.
The bill suggests amending the Civil Code, the Commercial Code, the Legal Entities and Sole Proprietors Act and Mandatory State Insurance Tax Act.
Importantly, this bill has to be considered together with another one aiming at amending the Internal Revenue Code to simplify the liquidation of sole proprietorships that don’t have employees, introduced on February 27, 2013.
The bill suggests a «notification-only» termination for sole proprietorships that don’t hire employees and a more friendly procedure for their liquidation.
However, a more detailed analysis shows that these two bills contain contradictory formulations.
Notably, in most instances both bills use the formula «sole proprietorships that don’t have employees». When studied closer, though, it appears that to qualify for a «simplified» procedure, a sole proprietor must not have hired employees for a year before he or she decided to liquidate the business.
Therefore, if the bills are going to be passed in the existing wording it will give rise to discrepancies. Some of the formulations even have caught the eye of Parliament’s Office for Research and Evaluation which said both bills need to be reviewed for these and a number of other reasons.
The closing procedure for eligible sole proprietorships will look like as follows: a sole proprietor shall first apply to the Internal Revenue Service for a closing audit and submit a number of supporting documents; some documents and reporting need to be filed with the Pension Fund as well.
IRS, no later that one day from the date of receipt of documents, will notify the Registrar of Companies that either (a) all documents have been received and termination is authorized; or (b) all documents have been received and termination is denied. The reason for denial can be if the IRS reasonably believes that the sole proprietor did have employees.
Similar notifications shall be received from the Pension Fund.
The sole proprietor will then submit a termination form to the Registrar of Companies. In case of positive answers from the IRS and the Pension Fund the business will be closed, otherwise (the bill suggests 6 cases) termination will be denied.
However, even with the relevant record of termination made in the register, the business will continue to be registered with the IRS and the Pension Fund until the relevant audits are conducted and the liabilities, if any, are paid off.
Thus, the proposed simplification is merely tokenistic and only good for non-employing sole traders.
This procedure takes the same 1 day now. The whole novelty is just about switching steps: the documents will now be submitted to the registrar in the end rather than in the beginning.
The main problem associated with liquidating a sole proprietorship, namely the audits by the regulatory authorities, was not dealt with. The audits were never abolished and the entire procedure remains complicated.
Equally, a «notification-only» start-up is not going to be introduced. Apparently, there still are reasons to maintain the existing company-like registration.
Simplification is the word only where a sole proprietor needs to cease to be a business owner as quickly as possible (for any reason). Examples can include public service or unemployment benefits.